Mortgage Choice sends the Count packing, for now

MORTGAGE Choice may have spurned the merger offer from the financial planner Count Financial, but the fact that the mortgage broker's share price is sticking around the $1.05 offer price shows the game of cat and mouse is not over by a long shot.

The verdict from brokers is a higher bid will be needed by Count and it shouldn't be a stretch given the synergies involved and the premium its stock enjoys over its target.

ABN Amro estimates that Count could generate 34c per share of value through cost synergies. And a scrip-based deal favours Count with its stock trading at 16.5 times earnings compared with Mortgage Choice at 9.5 times earnings.

"We believe a more appropriate control premium (15-20 per cent) is required for the deal to be successful," said the ABN Amro analysts lead by Nicolas Burgess. But he said the stock's freefall from $3.49 a year ago might deter the board from accepting anything less than a control premium of 40 to 50 per cent.

But Macquarie Equities' Mark Carew contends that a higher offer may not be needed given that mortgage brokers have become the meat in the sandwich between the global credit crunch and banks looking to cut costs by winnowing down fees to brokers like Mortgage Choice. "It is possible that Count's offer may be accepted at a later date once the full impact of the credit markets begins to impact Mortgage Choice's results," Carew says.

Mortgage Choice shares closed unchanged at $1 yesterday. Count Financial shares closed 10.5c lower at $1.645.

Wobbles at Seven

While cost cuts at the Nine Network are grabbing the headlines, profits at Kerry Stokes's Channel Seven won't be much to crow about either, media analysts reckon.

Sure, Seven Media Group has garnered the biggest share of the metropolitan TV ad market in the six months to June. But with advertising essentially flat and costs increasing, its TV earnings should be down 28 per cent for the half, according to Macquarie Bank's media analyst, Alex Pollak. Add to that interest costs for the $2.5 billion debt lying in its joint venture with KKR, and Seven Media is tipped to post a pretax loss of $12 million, he says.

Investors must be glad Seven owns just 47 per cent of the venture. The company as a whole is expected to report a second-half net profit of $57.9 million, boosted by dividends from its investments like West Australian Newspapers and more importantly, interest on its cash pile of $1.6 billion.

But with the shares having been slashed 44 per cent this year already, Pollak retained his outperform rating for the stock. After all, media billionaire Stokes himself may see that his shares are a bargain, having just recently boosted his stake in Seven to 45 per cent: "We note that it is impossible to rule out a takeover bid from Seven's major shareholder, given the discount," the Macquarie analyst said.

Hastings cops it

There has been more trouble in Britain for IAG with its motor insurer, Hastings, fined #735,000 ($1.5 million) over failings linked to hundreds of incorrectly priced policies.

The Financial Services Authority said Hastings had failed to treat customers fairly when it cancelled 4550 car insurance policies after an internal error gave customers inaccurate quotes and had some paying lower premiums.

The authority said the company failed to consider other possible remedies and found shortfalls in its service to customers. By agreeing to settle early, Hastings cut a fine that would otherwise have topped #1 million. IAG is expected to offload Hastings after announcing plans recently to scale back its operations in the cut-throat British motor market.

Little joy for James

It was more bad news for James Packer's Asian joint venture, Melco Crown Entertainment, with the Credit Suisse gaming analyst Gabriel Chan downgrading the company to neutral from outperform and lopping his target price from $US14.80 to $US7.50. Chan says the share price - which closed 13c lower at $7.75 yesterday - has already factored in a lot of the downside, but he can't see much joy on the horizon.

He expects that a decline in retained share of turnover - known as the "hold" - to 2.65 per cent, from an unusually high 3.1 per cent in the first quarter.

Chan is also predicting a 16.3 per cent decline in the number of high rollers visiting Crown Macau. He expects this will trigger a fall in earnings from $US77 million to $US41 million, although he argues that fears over the cap on junket commissions have been overplayed.

Packer's surprise

Surprise, surprise. James Packer's Challenger Infrastructure Fund (CIF) has recommended investors reject a proposal to wind up the fund when they meet to vote on it in Sydney on August 28.

The resolution, put forward by Arkmile, a subsidiary of the London-based Consensus Business Group, calls for the utility investment fund to be auctioned and the sale proceeds distributed to its investors. CIF independent directors have recommended security holders vote against the resolution because the fund would end up a forced seller if it was wound up.

They said market conditions would have a negative effect on any sale. Consensus, founded by the British property magnate Vincent Tchenguiz, said last month it was concerned about the "endemic undervaluation" of infrastructure funds listed on the Australian exchange.

CIF stapled securities were down 2c to $2.82 yesterday.

xchange@smh.com.au